With firms like Goldman Sachs and Morgan Stanley reporting weak results for last year, Wall Street is having to confront doubts about itself.
Is this a temporary slump? Or will the moneymakers never get to go back to their high-rolling ways? Many on Wall Street had hoped 2011 would be a year when the investment banks showed that they could still make solid profits in the more sober financial environment that has followed the 2008 crisis.
Instead, Goldman Sachs’s earnings fell 67 percent last year; Bank of America‘s investment banking operation, which includes Merrill Lynch, suffered a 53 percent decline in net income; and Morgan Stanley’s earnings were down by 42 percent.
Some of the forces that weighed on earnings last year – like Europe’s government debt crisis and a sluggish United States economy – could go away. Yet Wall Street still faces permanent pressures on profitability, particularly stricter regulations aimed at making the financial system safer. For instance, Wall Street firms cannot borrow such large amounts of money and make bets with it. With much less of this kind of leverage, the game is changed – perhaps forever.
“No matter how you cut it, the Goldman Sachs of tomorrow
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